Understanding funds - beginner questions

boomsmitty

Hello

I am new to the idea of investing in funds and have a few questions which I need help with answering please. Sorry if these are painfully obvious to some of you but this is a whole new world.

1) Are multi-asset funds a standalone product, or are most funds classed as multi asset? For example, I looked at what my pension is invested in and it's 60% equities I presume the rest bonds and other stuff. I presume this would be classed as multi-asset then?

2) Say I open an account with HL for example, and purchase a lump sum of units in a fund, can I set up a direct debit every month from my current account to the ISA there and tell it to buy shares automatically in that fund every month? Or does the cash sit there and I have to manually buy units as and when?

3) Should you invest in more than one fund?

4) Is it best to start with a passive tracker fund first for steady growth, low risk and low charges?

5) Can anybody recommend a book explaining the basics? The DIY Investor by Andy Bell looks like it could be worth a read - has anybody read it?

Any help with the above questions would be greatly appreciated!

Cheers

J

kinger101

(1) The term multi-asset fund is generally used to describe funds which hold different classes of assets. E.g., shares and bonds.

(2) You can nominate monthly savings to automatically invest into a specific fund. There will be a minimum amount

(3) You should diversify your portfolio so you don't have too much exposure to one sector, geographic location or company. Whether you should include a mixture of stocks and bonds depends on a number of factors, including your age and attitude to risk. Normally, one would pick a number of funds, but a FTSE World Index tracker would already be fairly diversified (if remaining 100% equity). As would most multi-asset funds.

(4) Passives are great for lower charges. On average, they outperform active funds. They aren't necessary low-risk. They may only give exposure to a single country or sector. You need to decide what your attitude to risk is, but a good starting point would be asking yourself when you need the money.

ColdIron

boomsmitty wrote: »

1) Are multi-asset funds a standalone product, or are most funds classed as multi asset? For example, I looked at what my pension is invested in and it's 60% equities I presume the rest bonds and other stuff. I presume this would be classed as multi-asset then?

Multi asset funds are a type of fund, there are many vendors of actual standalone multi asset funds. Some funds will be multi asset but many more will not be. Typically they would be a mixture asset classes, for instance equities and non-equities (bonds, perhaps property etc)

Your pension is an example of a multi asset fund

2) Say I open an account with HL for example, and purchase a lump sum of units in a fund, can I set up a direct debit every month from my current account to the ISA there and tell it to buy shares automatically in that fund every month? Or does the cash sit there and I have to manually buy units as and when?

You can do either, it's up to you

3) Should you invest in more than one fund?

You can if you think you have the skill to construct a portfolio of single sector funds but you don't need to if you have a well diversified multi asset fund. There would be little point in investing in more than one multi asset fund, especially as a novice

4) Is it best to start with a passive tracker fund first for steady growth, low risk and low charges?

As a beginner or as someone with a smaller investment, a multi asset fund made up from separate index trackers is probably the way to go. There are no multi asset funds that track a single index

5) Can anybody recommend a book explaining the basics? The DIY Investor by Andy Bell looks like it could be worth a read - has anybody read it?

I read Smarter Investing by Tim Hale but it's not a 20 minute read. There are many others. 20 minutes reading these links would be time well spent

https://monevator.com/category/investing/passive-investing-investing/
https://monevator.com/vanguard-lifestrategy/

Linton

boomsmitty wrote: »

Hello

I am new to the idea of investing in funds and have a few questions which I need help with answering please. Sorry if these are painfully obvious to some of you but this is a whole new world.

1) Are multi-asset funds a standalone product, or are most funds classed as multi asset? For example, I looked at what my pension is invested in and it's 60% equities I presume the rest bonds and other stuff. I presume this would be classed as multi-asset then?

Multi-asset funds are one of many types of fund. Most funds are not multi-asset but rather explicitly focus in a particular area, either geographic or investment type. If your pension is in a single fund with a range of different types of assets it could be classed as multi-asset. Multi-asset does cover a moderately broad spectrum from just investing in world equities and government bonds through to a much wider range of assets. Some multi-asset funds try to keep their % allocations constant, others vary them in reaction to changing economic conditions.


Multi-asset funds are designed to be stand-alone products. It does not seem sensible to me to buy a multi-asset fund because its objectives match yours and then buy other funds which change the allocations.

2) Say I open an account with HL for example, and purchase a lump sum of units in a fund, can I set up a direct debit every month from my current account to the ISA there and tell it to buy shares automatically in that fund every month? Or does the cash sit there and I have to manually buy units as and when?

I think it would be a standing order rather than a direct debit. I dont know whether HL offer a monthly automatic buy.

3) Should you invest in more than one fund?

You should invest in as many funds as are necessary to give you the coverage of underlying assets you want to achieve your objectives, but no more than that. So 1 multi-asset fund may be fine up to perhaps 10-15 niche funds.

4) Is it best to start with a passive tracker fund first for steady growth, low risk and low charges?

No reason not to start with a tracker first but a tracker is not automatically more likely to provide steady growth and low risk than any other fund. It fact it could be less likely as active funds exist which have low risk/steady growth as specific objectives. Low charges, in most cases yes. A tracker will not perform unusually well or unusually badly in the area it tracks. But if it tracks a risky area it will be risky.
Multi-asset funds cannot be trackers as by definition trackers track a single index. However some multi-asset funds are comprised of a set of trackers,

5) Can anybody recommend a book explaining the basics? The DIY Investor by Andy Bell looks like it could be worth a read - has anybody read it?

Never read it. However if you do read a book do not automatically accept what it says as gospel. Be prepared to question everything. There is no single right approach to investing, though perhaps rather a lot of wrong ones.

bowlhead99

Probably a lot of repetition of other posts which arrived while I was on the underground...

boomsmitty wrote: »

1) Are multi-asset funds a standalone product, or are most funds classed as multi asset? For example, I looked at what my pension is invested in and it's 60% equities I presume the rest bonds and other stuff. I presume this would be classed as multi-asset then?

Yes - a multi asset or mixed asset product invests in multiple types of assets (e.g., equities and bonds and commercial property). The default fund you get in a work place pension will do that sort of thing - although in a lot of cases with defined contribution workplace pensions you can still choose your own mix of more specialist funds if you don't just want to take what they give you, but many people ignore that option assuming the standard one will be 'good enough' for their goals.

2) Say I open an account with HL for example, and purchase a lump sum of units in a fund, can I set up a direct debit every month from my current account to the ISA there and tell it to buy shares automatically in that fund every month?

Yes

3) Should you invest in more than one fund?

No real need, especially if you are new to the idea of investing. You can find mixed asset funds at a range of different risk levels

4) Is it best to start with a passive tracker fund first for steady growth, low risk and low charges?

People who like passive funds will tell you it is best to use those first (or exclusively, on the grounds of them being low cost). It is a myth that they will give steady growth. If they are passive, they will by design follow the market they are tracking, up and down, as they have no other choice but to do that, and many such markets (eg UK equities, US equities, European equities, global equities etc) will have a great deal of volatility.

If you are using a passive tracker for a particular market, it is a fund that specialises in that specific market and doesn't hold other types of assets (even if it is a 'global' tracker and the 'market' it is tracking is "equities from all over the world weighted to the biggest ones"). With such specialist funds, you have to buy several of them to create some sort of 'mixed asset, balanced portfolio' covering the different asset classes.

So you are better to just start with one fund where the manager allocates your money across a mix of asset classes (like the aforementioned mixed asset funds which hold shares, bonds, properties etc). Some of those mixed asset / multi asset funds do choose to use underlying passive funds to build their portfolios, while others use more active ones or direct holdings.

Once you get to £25-50k or so, if you feel you understand investing and asset allocation yourself, you might like to use a mix of more specialist funds to come up with your own personalised allocations. But you might not, and don't need to.

5) Can anybody recommend a book explaining the basics? The DIY Investor by Andy Bell looks like it could be worth a read - has anybody read it?

I bought it to give to my dad ages ago, it seemed a reasonable intro to the practicalities of DIY investing when I skimmed it. However he hasn't shown much interest, as is content for me to explain stuff and help him and mum out with their investing. I could send you my copy, as I don't need it but I can't remember what box I put it in when moving host last year

tacpot12

A multi-asset fund may hold investments in different classes directly, i.e. it owns some shares, some bonds, some property, or it may own these assets in the form of other funds, i.e. it owns some units in a equity fund, some units in a bond fund and some units in a property fund. This second type of fund is sometimes called a "Fund of Funds" for obvious reasons.

londoninvestor

Linton wrote: »

I think it would be a standing order rather than a direct debit. I dont know whether HL offer a monthly automatic buy.

HL do, via a direct debit.

Some other platforms do it as a recurring payment from your debit card.

boomsmitty

That's fantastic. I've read all those replies and have had my questions fully answered. I'm sure I'll have more further down the road, but for now that's great.

ColdIron - thanks for the links you supplied for my perusal!

bowlhead99 - that's really nice of you to offer to send me the book, I'm going to see how I get on on here as I've realised most of what I need is on the forums. Nice one anyway though.

Lungboy

Have a watch of these videos as well as reading books. They are not long and they are a decent starting point. https://www.youtube.com/playlist?list=PL24qYBiXaDDsSGgzBFxEe8SsECXiqVFpI

boomsmitty

Thanks for that Lungboy. Started watching those on my lunch break today. Liked what the guy was saying so much that I've got his book coming from Amazon tomorrow!

boomsmitty

Right. I've been reading and researching and things are slowly beginning to become clear.

The bottom line is that I want to invest a lump sum of about £5k and top it up every month by about £200. I'm 32 and intend for this to be sat there for about 20 years.

I'm reading "Investing Demystified" and he's on about World Equity Index trackers. Sounds interesting.

I was going to go with HL as I love their website and presentation, but after getting more into the "real" cost of charges I have been looking at Vanguard recently which seems much lower - charge wise.

For example, they have a fund I like the look of called "FTSE Developed World ex-UK Equity Index Fund Accumulation". It has an OCF of 0.15%.

Now forgive me, but imagine I just invested £5k, bought that fund and had it a year without anything else happening. Would that be the only charge I pay? £7.50? Is that right? That seems good value.

Thanks